Grayscale Bitcoin Trust, Record Sale! What Does This Mean For BTC?

US investors have been waiting for Bitcoin exchange-traded fund (ETF) approval since May 2014, when Winklevoss Bitcoin Trust submitted a change request to the US Securities and Exchange Commission (SEC). Over the years, the SEC has rejected every application, and the most recent rejection came after WisdomTree’s spot BTC application on October 11. According to the SEC, the offer could lead to “fraud and market manipulation”. In addition, it may result in “violations of exchange rules and applicable securities laws and rules”. Meanwhile, the Grayscale Bitcoin Trust fund is in process with a record discount. Here are the details…

Grayscale Bitcoin fund is on record sale: What’s the reason?

Bitcoin investment stakeholder tools have been around since 2013, but are finite with accredited investors. A spot-based BTC ETF opens the market to personal investors. It also provides the opportunity for a wider range of mutual funds in the branch. Currently, US regulators are reluctant for many to launch an ETF. BTC spot ETFs continue to be rejected. But the exact artifact has long been available for bonds, global currencies, gold, Chinese stocks, real estate, oil and silver.

Grayscale Bitcoin Trust Fund (GBTC), a $12.3 billion investment fund, is currently trading at a record 36.7% discount compared to Bitcoin shares. However, this may not be a purchase type discount. The gap between the spot price and the trust fund began after the Toronto Stock Exchange launched the Purpose Bitcoin ETF in February 2021.

What is a traded fund?

An ETF is a type of trust that holds a variety of underlying investments such as commodities, stocks or bonds. An ETF is an example of a mutual fund as it is pooled and managed by its issuer. SPY, the ETF that tracks the S&P 500 index, is the most recognizable example of this. The mutual fund is currently managed by State Street. It carries $328 billion in assets under administration. Purchasing an ETF gives the investor direct ownership of the investment asset. It creates different tax events against futures contracts and leveraged situations.

Trust funds, such as GBTC, do not offer repayment or conversion rights. Investment stakeholder funds are outside the jurisdiction of the SEC and are actually regulated by the US OCC. Grayscale’s GBTC is the absolute leader in the cryptocurrency market despite being a corporate structure. Investment partnership is considered a closed-end fund. That is, the number of available shares is finite. As a result, GBTC shares are not freely created and do not offer a redemption program. This inefficiency creates valuable price discrepancies against the underlying Bitcoin assets of the fund. In contrast, an ETF allows the market maker to create and use shares. Thus, it ensures that the premium or discount is often minimal.

For example, the Purpose Bitcoin ETF (BTCC.U) had a net worth of $3.59 per share on Oct. 13. Shares closed at $3.60 on the Toronto stock exchange. For example, the base price of the derivatives-focused ProShares Bitcoin Strategy ETF (BITO) was $11.94 on Oct. 13. Its shares traded at $11.95.

Grayscale battles the SEC

In June 2022, asset manager Grayscale filed a lawsuit with the SEC regarding converting GBTC into a spot-based Bitcoin ETF. As we have also reported, the firm has been waiting for a final decision from the regulator since it submitted its application in October 2021. Grayscale’s senior legal strategist said the SEC rejection was “arbitrary.” As a result, the asset manager filed a legal appeal based on the SEC’s argument that it violated the Administrative Procedure Act and the Securities Act. It should be noted that eight and a half years have passed since the first request for Bitcoin spot ETF registration was submitted.

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